Wednesday, July 10, 2013

[aaykarbhavan] Judgments








IT : Making addition merely on basis of seized documents without cogent evidence that excess amount mentioned in seized document had actually passed on to assessee, was not sustainable where books of account of assessee-construction company were duly audited
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[2013] 35 taxmann.com 3 (Madhya Pradesh)
HIGH COURT OF MADHYA PRADESH
Commissioner of Income-tax
v.
Dolphin Builders (P.) Ltd.*
KRISHN KUMAR LAHOTI, ACTG. CJ. 
AND M.A. SIDDIQUI, J.
M.A.I.T. NO. 13 OF 2002
APRIL  30, 2013 
Section 69, read with section 44AD, of the Income-tax Act, 1961 - Unexplained investments [Real estate transactions] - Assessee, a construction company entered into agreement with 'G' to sell flats constructed by it - During raid conducted at premises of 'G', a note book was found mentioning some figures in respect of flats constructed by assessee - Assessing Officer on taking view that figures in seized document indicated sale price of flats, recomputed income of assessee - Whether, where there was no material evidence regarding authenticity of seized document and there was no evidence that any excess amount was passed on to assessee, making addition on mere doubt could not be held as correct - Held, yes - Whether, therefore, where books of account maintained by assessee were duly audited and there was no question of disbelieving them in absence of any cogent evidence, benefit under section 44AD could be granted to assessee - Held, yes [Paras 13 & 14] [In favour of assessee]
FACTS
 
 The assessee, a construction company constructed 24 flats in two buildings and entered into agreement with 'G', according to which flats were sold through 'G' on an agreed commission.
 A raid was conducted in the premises of 'G' in which a note book was found, where in the column for cost of flats some figures were mentioned in respect of assessee's apartments. The Assessing Officer taking view that the figures indicated the sale price of flats of assessee's apartments, recomputed the income under section 44AD by calculating sale proceeds as per the seized document.
 On first appeal, the assessee's appeal was partly allowed, as Commissioner (Appeals) held that since gross receipts including those not accounted for exceeded Rs. 40 lakh, section 44AD was not applicable.
 On cross appeals before the Tribunal, the appeal of the assessee was allowed that no addition was required.
 On appeal by the revenue, assessee contended that its books of account were duly audited and all the vouchers bill cash memos and other relevant documents were also properly maintained. Also there was nothing to show that any excess payment had passed on from 'G'.
HELD
 
 On perusing the orders of the Assessing Officer, Income-Tax Commissioner, the ITAT it is agreed that the arguments advanced on behalf of assessee that no prima facie evidence of passing any money from 'G' to assessee was proved and for the papers seized from any other place i.e.'G' assessee cannot be held liable, so, the tribunal has committed no error. [Para 12]
 On perusing the material in the matter it is found that there was no evidence in the matter that the excess amount, if any, was collected by 'G' or even if it was collected then it was passed on to the assessee. There was no search, survey or seizure of the premises of the assessee. Apart from this, the department had not examined any purchaser or flat owner to verify the correctness of the aforesaid noting that some higher amount was paid by the said purchaser to 'G' or the fact that actual price was much higher to the price which was recorded in the account books. The Tribunal have also found that if any amount was collected in excess to the agreed price then 'G' could have been liable for that and not the assessee. It is found that reasoning of the Tribunal to be reasonable. Though there may be some doubt about the price of the flats but until and unless it could have been proved by some evidence, aforesaid doubt cannot take place of proof. Until and unless such noting is corroborated by some material evidence, the Assessing Officer erred in making addition in the income. [Para 13]
 So far as the applicability of section 44AD is concerned, when the assessee had maintained accounts books, vouchers and other documents as required under sub-section (2) of section 44AA and got them audited and furnished it along with audit report then such benefit should have been extended to the assessee. In the present case audited accounts books were maintained and there was no question of disbelieving them in absence of any cogent evidence. [Para 14]
 The order passed by the Tribunal is based on proper appreciation of facts and there is no error in the order. [Para 15]
 In view of the aforesaid discussion, no merit and substance is found in the appeal and is, accordingly dismissed. [Para 16]
Sanjay Lal for the Appellant. G.N. Purohit and Abhishek Oswal for the Respondent.
ORDER
 
M.A. Siddiqui, J. - The appellant has filed this appeal u/s 260-A of the Income Tax Act, 1961 being aggrieved from the order of appellate Tribunal, Income Tax, Indore dated 18.1.2002 by which the appeal preferred by Department was dismissed.
2. In brief the facts of the case are that that the respondents M/s Dolphin Builder (P) Ltd (hereinafter referred as assessee) constructed 24 flats in two buildings known as "Amardeep Apartments" and "Amarjyoti Apartments" and entered into agreement with Shri BD Agarwal and M/s Goyal Builders, according to which B.D. Agarwal had sold his land/plot to the assessee for a consideration of Rs.1,30,000/-. The assessee had constructed 10 LIG and 2 HIG flats to be sold through Goyal Builders on an agreed commission @2% of the sale proceeds.
3. As per the agreement the LIG flats were to be sold on the cost of 1.25 lakhs each and the HIG flats were to be sold at a cost of Rs.2.5 lakhs each. According to the assessee it received Rs.35,50,000/- on sale of flats, which were duly accounted for in the books of the assessee. Likewise, the assessee had also entered into another agreement with Shri Prakash Agrawal and M/s Goyal Builders wherein by clause No.4 of the agreement, Prakash Agrawal had sold his land/plot to the assessee for a consideration of Rs.1,60,000/-. The assessee was to construct 6 LIG flats to be sold at Rs.1.25 lakhs, 3 Sr. LIG flats to be sold at Rs.1.5 lakhs and 3 MIG flats to be sold at Rs.2.00 lakhs each through M/s Goyal Builders on payment of commission @2% to them. The sale consideration of these flats amounted to 18 lakhs and the net sale proceeds after deducting commission of Rs.71,000/-, @2% payable to M/s Goyal Builders were credited to the profit and loss account.
4. A raid was conducted by Income Tax Department, Bhopal u/s 132 of the Income tax Act, 1961 (in short 'the Act') in the premises of Goyal Builders in which some papers were found and some figures were noted in these papers. The department had taken action under Section 132 of the Act in the case of Shri Ashok Goyal Proprietor of M/s Goyal Builders and a note book marked as Annexure CII containing sketch map of "Amareep Apartment" and "Amar Jyoti Apartments" was found, where in the column for cost of flats i.e. the figures 4.5., 4.25, 3.15, 2.5, 2.35, 2 and 1.95 in respect of "Amardeep" and "Amar Jyoti Apartments" were mentioned. The Assessing Officer (A.O.) was of the view that these figures definitely indicated the sale price of the flats of the above two apartments.
5. The A.O. had come to the conclusion that the total sale proceeds of 12 flats in Amardeep Apartments worked out to be Rs.28,65,000/- as against sale proceeds accounted for in the books at Rs.17,50,000/- and thus the assessee had understated the sale proceeds by Rs.11,15,000/-. Similarly, in "Amar Jyoti Apartments" the total sale proceeds of 12 flats as per the figures given in Annexure C-11, worked out to be Rs.28,50,000/- and against sale proceeds accounted for in the book at Rs.18.00 lacs were corroborated by other seized documents. The total sale proceeds as per the seized documents worked out to be Rs.58,50,000/- as against the sale proceed of Rs.35,50,000/- accounted for in the books of accounts. The A.O. had determined the income at Rs. 2,84,000/- under Section 44 AD of the Act and separately deducted the commission of Rs. 20,19,700/-. Accordingly, he had determined the total income at Rs.25,03,700/-.
6. The matter was challenged before CITA by the assessee and CITA vide Annexure A-2 order dated 26/8/98, by partly allowing the appeal, came to the conclusion that total receipt including those not accounted for in the books, not exceeded Rs.40.00 Lakhs, so provisions of Section 44AD were not applicable and the A.O. was wrong in applying the provisions of Section 44 AD, and was not justified in assessing the assessment. Against the order of Income Tax Commissioner, the department travelled in appeal before the ITAT, Indore and assessee also filed the appeal.
7. The findings of Income Tax Commissioner were challenged by the assessee through ITA No.956/India/98 assessment year 1994-95 and department had also filed appeal through ITA 131/India/99 assessment year 94-95. The appeal of assessee was allowed and appeal of Department was dismissed against which this appeal has been filed. This appeal was admitted on 30/10/2002 on the following substantial questions of law:-
(i) On the facts and in the circumstances of the case, the learned CIT(A) erred in granting relief of Rs.4,68,750 in respect of assessee's income in the case for the year under consideration.
(ii) On the facts and circumstances of the case, the learned CIT(A) erred in holding that the provisions of Section 44AD were not applicable on the facts of the case and in the allowing relief to the assessee by combining the amount of receipts shown and the amounts of undisclosed income.
8. (a) Learned counsel for the appellant has submitted that as the transaction was above Rs.40.00 lacs the A.O. had rightly applied the provisions of Section 44AD of the Act and supported the order of assessment passed by the Assessing Officer. His further submission was that ITAT had wrongly came to the conclusion that Section 44AD was not attracted and wrongly upheld the finding of IT Commissioner's Order. That M/s Goyal builders had given the authority to sell the plot and commission was to be paid on the sale. As per Section 132 of the Act of 1961 in the case of Shri Ahsok Goyal, Proprietor of M/s Goyal Builders a note book marked as Annexure C-II containing sketch map of "Amardeep Apartment" and "Amar Jyoti Apartments" was found, wherein the column for cost of flats i.e. the figures 4.5., 4.25, 3.15, 2.5, 2.35, 2 and 1.95 in respect of "Amardeep" and "Amar Jyoti Apartments" were mentioned. The Assessing Officer (A.O.) was of the view that these figures definitely indicate the sale price of the flats of the two apartments. The A.O. At page 6 of his order had discussed that the cost of flats indicated in Annexure C-II, had tallied with the receipts of amounts from different purchasers mentioned in another seized document marked as Annexure C-15.
(b) The Assessing Officer, came to the conclusion that total sale proceed of 12 flats in Amardeep Apartments worked out to Rs.28,65,000/- as against the sale proceeds accounted for in the books at Rs.17,50,000/- thus the assessee had understated the sale proceeds by Rs.11,15,000/- Likewise in Amar Jyoti Apartments the total sale proceeds of 12 flats as per the figures given in C-11 were worked out to be Rs.28,50,000/- against sale proceeds accounted for in the books at Rs.18,000,00/- which were corroborated by other seized document Annexure C-15. The total sale proceed as per the seized document Annexure C-11 were worked out to be Rs.58,50,000/- against the sale proceeds of Rs.35,50,000/- accounted for in the books of accounts. The Assessing Officer had rightly determined the income at Rs.2,84,000/- under Section 44 AD and made additions of the unrecorded net receipts after deducting commission of Rs.22,19,700/-., while the CITA held that the estimation of net income @ 8% of the gross receipts was not proper.
9. Learned counsel for the respondent submitted that provisions of section 44 AD are not applicable. The books of Accounts were duly audited and assessee was maintaining the vouchers, bills cash memos and other relevant documents so the case of the assessee is not covered under clause-1 of Section 44. The ITAT have rightly determined the net profit rate at 8% on the receipt shown by the assessee. The total receipts shown by the assessee are of Rs. 34,79,000/- which were received from M/s Goyal Builders who was to sale all these flats. The receipts were shown after deducting the Commission of Rs.71,000/- paid to Goyal Builders at the rate of 2% on the total receipt of Rs.35,50,000/-. Therefore, the purpose of the computation of the total income the total receipts will be taken at Rs. 35,50,000/- applying the net profit rate at 8% of the total income of the assessee come to Rs.2,84,000/-.
10. Learned counsel for the appellant has submitted that undisputedly M/s Goyal Builders was engaged for the sale of the plots and flats were sold out through him and figures which were given in C-II are the correct figures of the Sales proceeds which were made by Goyal Builders.
11. Learned counsel for the appellant has vehemently opposed the prayer made by the respondent and has submitted that there is no evidence that excess amount if any collected by Goyal Builders was passed on to the assessee. There is nothing on record to show that any enquiry in this regard was conducted by the Department to prove the prevailing prices of the plots. It is also been submitted that if any material was found that there was excess payment then Goyal Builders could have been held liable and not the assessee and so the Tribunal has rightly deleted the additions by allowing the appeal.
12. We have perused the record, orders of the Assessing Officer, Income Tax Commissioner, the ITAT and we are in full agreement with the arguments advanced on behalf of respondent assessee that no prima facie evidence of passing any money from Goyal Builders to assessee was proved and for the papers seized from any other place i.e. Goyal Builders, assessee cannot be held liable, so, the tribunal has committed no error.
13. We have also perused the material in the matter and find that there was no evidence in the matter that the excess amount, if any, was collected by M/s Goyal Builders or even if it was collected then it was passed on to the respondent. There was no search, survey or seizure of the premises of the assessee. Apart from this, the department had not examined any purchaser or flat owner to verify the correctness of the aforesaid noting that some higher amount was paid by the said purchaser to M/s Goyal Builders or the fact that actual price was much higher to the price which was recorded in the account books. The Tribunal have also found that if any amount was collected in excess to the agreed price then M/s Goyal Builders could have been liable for that and not the assessee. We find the aforesaid reasoning of the Tribunal to be reasonable. Though there may be some doubt about the price of the flats but until and unless it could have been proved by some evidence, aforesaid doubt cannot take place of proof. Until and unless such noting is corroborated by some material evidence, the Assessing Officer erred in making addition in the income.
14. So far as the applicability of Clause 5 of Section 44 AD of the Income Tax Act is concerned, when the assessee had maintained accounts books, vouchers and other documents as required under Section 2 Sub Section 44 AA of the Income Tax Act and got them audited and furnished it alongwith audit report then such benefit should have been extended to the assessee. In the present case audited accounts books were maintained and there was no question of disbelieving them in absence of any cogent evidence.
15. The order passed by the tribunal is based on proper appreciation of facts and there is no error in the order.
16. In view of the aforesaid discussion, we find no merit and substance in the appeal and is accordingly dismissed.
ESHA

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HIGH COURT OF JUDICATURE AT ALLAHABAD
Court No. - 32
Case :- WRIT TAX No. - 1714 of 2010
Petitioner :- Neeraj Janhitkari Gramin Sewa Sansthan
Respondent :- Chief Commissioner Of Income Tax And Others
Counsel for Petitioner :- S.K. Garg, A. Bansal
Counsel for Respondent :- C.S.C., Bharat Agrawal, S.Chopra.
Hon'ble Prakash Krishna,J.
Hon'ble Manoj Kumar Gupta,J.
1. The petitioner is a society registered under the Societies Registration Act, 1860 vide registration no. 545/199091
dated 3-9-1990. It is running a co-educational degree college in the name and style of Ch. Natthu Singh Yadav
Mahavidyalaya Dihuli Barnahal, Karhal, Mainpuri. It is stated that the College is located in a backward area and is
imparting education to boys and girls by charging a very nominal fees. Fee is being charged to meet out the running
cost and surplus is being used for developing necessary infrastructure to promote education. It has further been
claimed that the institution is providing fee concession to poor, handicapped and disabled students while no fee is
being charged from SC and ST students.
2. The petitioner society is registered with the Income Tax Department having Pan No. AABTN 2289D. It made an
application in prescribed form for approval under section 10(23C)(vi) of the Income Tax Act for assessment year 2009-
2010 onwards. The said application has been rejected by impugned order dated 31-8-2010 passed by the Chief
Commissioner Income Tax, Ghaziabad on following grounds :-
(A) The approval u/s. 10(23C)(vi) of the Act is available only to an educational institution existing solely for the
educational purposes while the memorandum of the society stipulates other objects as well.
(B) The application for exemption of the Income Tax should have been filed by the educational institution while the
application in the instant case has been made by the society.
(C) The aims and objects of the society provides for free education but the income and expenditure account filed
along with the application shows that the institution has been charging fees and which is against the objects of the
society.
3. Challenging the said order, petitioner has come up in writ petition before this court.
4. We have heard Sri Ashish Bansal, advocate for the petitioner and Sri Shambhu Chopra, learned counsel appearing
for the department.
5. Learned counsel for the petitioner submitted that for obtaining approval from the Prescribed Authority under clause
(vi) of section 10(23C) it is not necessary that the application should have been filed by the educational institution
itself. Such an application has to be filed by 'person' as defined under section 2(31) of the Act which, according to
him in the instant case is the society. Elaborating his argument he further submitted that the 'person' contemplated
by section 2(31) of the Act may be having income from various sources but under section 10, such of its income
which falls under any of the clauses stipulated thereunder is exempt and not income from other sources. Thus, it is
not necessary that the 'person' which in the instant case is the society, should be having income only from one or
other source stipulated under various clauses of section 10 and from no other source.
6. He further submitted that Rule 2-CA of the Income Tax Rules, 1962 which provides for application for approval being
made in form 56D by educational institution is procedural one and cannot restrict or whittle down the scope and ambit
of the statutory provision, i.e. section 10 which is applicable to a 'person' as defined under section 2(31) of the Act.
Alternatively, he submits that it has been the specific case of petitioner society that it is engaged only in running the
Education institutions and is not perusing any other object mentioned in its original bye-laws. In support of his
contentions, he placed strong reliance on the judgement of this court dated 16-10-2012 passed in Writ petition No.
1185 of 2011 C.P. Vidya Niketan Inter College Shikshan Society vs. Union of India and others. He has also placed
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reliance on the judgement of the Apex Court reported in (1997) 224 ITR 310 (SC) Aditanar Educational Institution vs.
Additional Commissioner of Income Tax, (2010) 327 ITR 73 (P & H) Pinegrove International Charitable Trust vs. Union
of India and others, (2010) 329 ITR 459 (Delhi) Digember Jain Society for Child Welfare vs. Director General of
Income-Tax (Exemptions) and (2008) 301 ITR 86 (SC) American Hotel and Lodging Association Educational Institute
v. Central Board of Direct Taxes & others.
7. On the other hand, Sri Shambhu Chopra, counsel for the department contended that the application filed by the
petitioner society was rightly rejected as not maintainable and since the society has not been formed with the sole
object of imparting education, but its memorandum of association reflects that it has other aims and objects as well
and, therefore, it has rightly been denied approval u/s. 10(23C)(vi).
8. The first and foremost question which is required to be considered is whether the application for approval u/s.
10(23C)(vi) at the instance of the petitioner society was maintainable or nor and if the view taken by the prescribed
authority that such application should have been filed by the educational institution itself, is legally sustainable.
Before insertion of section u/s.10(23C)(vi), such cases were covered by section 10(22) which was to the following
effect :-
"10(22) any income of an university or other educational institution, existing solely for educational purposes and not
for purposes of profit."
The aforesaid provision was amended by Finance No.2 Act, 1998, w.e.f. 1-4-1999 and in its place section 10(23C)(vi)
has been inserted which is as follows :-
"10(23C)(vi) any university or other educational institution existing solely for educational purposes and not for
purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved
by the prescribed authority; or..."
9. In the case of American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes &
others (supra), Supreme Court considered the effect of insertion of section 10(23C)(vi) of the Income Tax Act, 1961
and held that the amended provisions are analogous to section 10(23). Punjab & Haryana High Court had the
occasion to consider the effect of section 10(23C)(vi) in its judgement reported in (2010) 327 ITR 73 Pinegrove
International Charitable Trust vs. Union of India and others, while replying to a specific question whether a society
registered under the Societies Registration Act, 1860 is eligible to apply for exemption u/s. 10(23C)(vi) of the Act. The
question was answered in favour of the society by holding that the application for approval u/s. 10(23C)(vi) is
maintainable at the instance of a society. While taking the aforesaid view, reliance was placed on the judgement of
the Apex Court in the case of Aditanar Educational Institution (supra). Relevant paragraph whereof is reproduced
below :-
"Counsel for the Revenue mainly stressed the plea that the exemption under Section 10( 22) of the Act would apply
only to educational institutions as such. According to him, in this case, the assessee might be financing for running
an educational institution, but it is not itself an educational institution. As noted earlier, the Tribunal held that the
assessee was an institution existing for educational purposes and not for the purposes of earning any profit and the
assessee itself could be termed as an "educational institution" coming within Section 10(22) of the Act. The High
Court has concurred with this view. The High Court has further held that the medium through which the assessee
could effectuate its objects is the college and by employing this medium, the assessee imparts education and it
cannot be stated that the assessee is only a financing body and does not, on facts, come within the scope of "other
educational institution" occurring in Section 10(22) of the Act. Reliance was placed on the decision of the Allahabad
High court in Katra Education Society vs. Income Tax Officer [1978] 111 ITR 420), to hold that an educational society
could be regarded as an educational institution if the society was running an educational institution. We are of the
view that an educational society or a trust or other similar body running an educational institution solely for
educational purposes and not for the purpose of profit could be regarded as "other educational institution" coming
within section 10(22) of the Act. (See CIT v. Doon Foundation - [1985] 154 ITR 208 (Cal) and Agarwal Shiksha Samiti
Trust vs. CIT [1987] 168 ITR 751 (Raj). It will be rather unreal and hyper-technical to hold that the assessee-society is
only a financing body and will not come within the scope of "other educational institution" as specified in section
10(22) of the Act."
10. Similar view has been taken by Delhi High Court in its judgement in Digember Jain Society For Child Welfare vs.
DGIT (supra) wherein it was observed as under :-
"The Supreme Court in Aditanar Educational Institution v. Additional CIT [1997] 224 ITR 310, has held that a society
or a trust or other similar body running educational institutions solely for educational purposes and having the overall
object of not to make any profit can be regarded as "other educational institution" even if some surplus arises from its
activities.
When we apply the principles laid down by the apex court in the aforesaid judgements, it becomes clear that the
petitioner-society has mainly been formed within the objective of carrying out educational activity. There is no purpose
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of profit. As of today, its only activity is education, namely, running of various schools and no other activity."
11. In view of the authoritative pronouncement of law by the Apex Court and various High Courts, we have no
hesitation in holding that the application filed by the petitioner society cannot be rejected on the ground that it is not
at the instance of "educational institution" as referred to under section 10(23C)(vi) of the Act and Rule 2-CA of the
Income Tax Rules, 1962.
12. The next question which now arises for consideration is whether an application can be rejected on the ground that
the memorandum of association of the society provides for various other objects apart from educational activities. In
this regard, the argument of learned counsel for the petitioner is that even though under the unamended bye-laws of
the society, various other aims and objects were mentioned but according to application for approval and the material
on record, the society is only carrying on educational activities. In this regard, specific assertion has been made in
paragraph 2 of the application for approval. In paragraph 7 of the application, there is a specific assertion that the only
source of income of the society is the nominal fees being charged from students and it has no other source of
income. Learned counsel for the petitioner has placed strong reliance on the judgement of this court in the case of
C.P. Vidya Niketan Inter College Shikshan Society (supra). We find that there the petitioner was a society which had
made an application for approval u/s.10(23C)(vi) and its application for approval was rejected on the ground that
benefit of section 10(23C)(vi) is available only to an educational institution existing solely for the purpose of imparting
education, while the application has been made by a society having many activities that appear to be other than
educational such as to make appropriate efforts for upliftment of public in social and cultural field etc. Therein, this
court had held that even though the aims and objects of the society may contain several objects but if it has been
proved by material on record that the society is not perusing any other activity apart from eduction then in such case,
the society will qualify for grant of approval u/s. 10(23C)(vi) of the Act. It was observed as under :-
"In the facts and circumstances, we are of the opinion that as of now the petitioner society running educational
institution by the name of C.P. Vidya Niketan Inter College at Kaimganj, Distt. Farrukhabad imparts education to
students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other
charitable activities, would not disentitle the society from approval under Section 10 (23C)(vi) of exemption. The
proviso added to Section 10 (23C)(vi), specially Proviso 2, 3, 12 and 13, give sufficient powers to check the abuse of
the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not
charitable, or closely connected with education for making profit, would not constitute the grounds to reject the
approval under Section 10 (23C)(vi)."
13. Perusal of the impugned order shows that the pleading in this regard have not been taken into consideration.
Further, in the impugned orders, although, there is a finding that the society is having many objects other than
educational, but there is no application of mind to the assertion made by the society that it is only pursuing the
educational activity and no other. In view of the Division Bench decision of this Court in case of C.P. Vidya Niketan
Inter College Shikshan Society (supra), in case, the society is pursuing only educational objects and no other activity
then the application by such a society for grant of approval u/s. 10(23C) (vi) cannot be rejected on the ground that its
aims and objects contain several other objects apart from educational and application by such a society is perfectly
maintainable.
14. Sri Shambhu Chopra, appearing for the department could not point out any distinguishing feature but rather
accepted that the judgement of the Division Bench in C.P. Vidya Niketan Inter College Shikshan Society will have full
application to the facts of the instant case.
15. Respectively following such judgement, the impugned order dated 31-8-2010 passed by the Chief Commissioner,
Income Tax, Ghaziabad is quashed. The matter is remitted back to the Prescribed authority for a fresh decision in
accordance with the observations made above. It is desirable that the said decision may be taken by the Prescribed
Authority within three months from the date of production of a certified copy of this order before it.
16. Since the matter is being remitted to the Prescribed Authority and, therefore, this court is not going into the other
questions which may also be pressed and decided by the concerned authority afresh strictly in accordance with law.
17. Subject to the above, the writ petition is allowed. No orders as to costs.
(Manoj Kumar Gupta, J.) (Prakash Krishna, J.)
Order Date :- 4.7.2013
skv
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of profit. As of today, its only activity is education, namely, running of various schools and no other activity."
11. In view of the authoritative pronouncement of law by the Apex Court and various High Courts, we have no
hesitation in holding that the application filed by the petitioner society cannot be rejected on the ground that it is not
at the instance of "educational institution" as referred to under section 10(23C)(vi) of the Act and Rule 2-CA of the
Income Tax Rules, 1962.
12. The next question which now arises for consideration is whether an application can be rejected on the ground that
the memorandum of association of the society provides for various other objects apart from educational activities. In
this regard, the argument of learned counsel for the petitioner is that even though under the unamended bye-laws of
the society, various other aims and objects were mentioned but according to application for approval and the material
on record, the society is only carrying on educational activities. In this regard, specific assertion has been made in
paragraph 2 of the application for approval. In paragraph 7 of the application, there is a specific assertion that the only
source of income of the society is the nominal fees being charged from students and it has no other source of
income. Learned counsel for the petitioner has placed strong reliance on the judgement of this court in the case of
C.P. Vidya Niketan Inter College Shikshan Society (supra). We find that there the petitioner was a society which had
made an application for approval u/s.10(23C)(vi) and its application for approval was rejected on the ground that
benefit of section 10(23C)(vi) is available only to an educational institution existing solely for the purpose of imparting
education, while the application has been made by a society having many activities that appear to be other than
educational such as to make appropriate efforts for upliftment of public in social and cultural field etc. Therein, this
court had held that even though the aims and objects of the society may contain several objects but if it has been
proved by material on record that the society is not perusing any other activity apart from eduction then in such case,
the society will qualify for grant of approval u/s. 10(23C)(vi) of the Act. It was observed as under :-
"In the facts and circumstances, we are of the opinion that as of now the petitioner society running educational
institution by the name of C.P. Vidya Niketan Inter College at Kaimganj, Distt. Farrukhabad imparts education to
students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other
charitable activities, would not disentitle the society from approval under Section 10 (23C)(vi) of exemption. The
proviso added to Section 10 (23C)(vi), specially Proviso 2, 3, 12 and 13, give sufficient powers to check the abuse of
the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not
charitable, or closely connected with education for making profit, would not constitute the grounds to reject the
approval under Section 10 (23C)(vi)."
13. Perusal of the impugned order shows that the pleading in this regard have not been taken into consideration.
Further, in the impugned orders, although, there is a finding that the society is having many objects other than
educational, but there is no application of mind to the assertion made by the society that it is only pursuing the
educational activity and no other. In view of the Division Bench decision of this Court in case of C.P. Vidya Niketan
Inter College Shikshan Society (supra), in case, the society is pursuing only educational objects and no other activity
then the application by such a society for grant of approval u/s. 10(23C) (vi) cannot be rejected on the ground that its
aims and objects contain several other objects apart from educational and application by such a society is perfectly
maintainable.
14. Sri Shambhu Chopra, appearing for the department could not point out any distinguishing feature but rather
accepted that the judgement of the Division Bench in C.P. Vidya Niketan Inter College Shikshan Society will have full
application to the facts of the instant case.
15. Respectively following such judgement, the impugned order dated 31-8-2010 passed by the Chief Commissioner,
Income Tax, Ghaziabad is quashed. The matter is remitted back to the Prescribed authority for a fresh decision in
accordance with the observations made above. It is desirable that the said decision may be taken by the Prescribed
Authority within three months from the date of production of a certified copy of this order before it.
16. Since the matter is being remitted to the Prescribed Authority and, therefore, this court is not going into the other
questions which may also be pressed and decided by the concerned authority afresh strictly in accordance with law.
17. Subject to the above, the writ petition is allowed. No orders as to costs.
(Manoj Kumar Gupta, J.) (Prakash Krishna, J.)
Order Date :- 4.7.2013



Service Tax on Commission paid to overseas agents - Is it a 'Sin Tax'? 

JULY 09, 2013

MANUFACTURING exports from India could increase from the meager USD 40 billion in 2002 to about USD 300 billion in 2015, according to a report titled 'Made in India-the Next Big Manufacturing Export Story', jointly prepared by CII and McKinsey. The report assesses that such an expansion would make India grab a share of approximately 3.5 per cent in the world manufacturing trade. Further, along with robust domestic demand growth, this is likely to create 25-30 million new jobs.
Another Report on the Working Group constituted by Ministry of Commerce & Industry on"Boosting India's Manufacturing Exports - Twelfth Five Year Plan (2012-17)" has projected growth of manufacturing exports from the current level of USD 151 billion to USD 534 billion by the final year of the 12th Plan. The total merchandise exports are likely to be near the USD 900 billion mark during 2016-17. The Report throws light on the present stumbling blocks of non-zero rating of exports and embedded taxes associated with the existing set up. How the noble objective of the astonishing billion mark for exports could be achieved if we are exporting taxes also to the world at large? Cascading effect of taxes on exports both at Central and State level would keep our export targets as targets only.
For penetration in the overseas market, nowadays, engagement of foreign Commission agents have become customary. Throughout the supply chain, right from the booking of orders, deliverables, collection of fund, post delivery follow up, customer care etc, the so-called agents play a pivotal role and for their services, commission is payable at the rate mutually agreed upon. Effective from 18th April, 2006, Service Tax has also to be paid on the payment of such commission under reverse charge mechanism. Departmental Officers at various places were not in favour of extending CENVAT credit on Service Tax paid under reverse charge on flimsy grounds even though Tribunals and Courts have not accepted the contention of the adjudicating authorities and have extended CENVAT benefits to the manufacturers.
In consonance with the avowed policy of the Government to promote export by relieving the burden of taxes on the product exported and also on the products consumed in the manufacture of the goods exported, CBEC had undertaken several measures like introduction of Service Tax refund scheme, Service Tax exemptions, Drawback, clarificatory Circulars etc. Various Tribunal judgements also are supportive to the above measures, few of which are given below:
Amalgamations Repco Ltd Vs.CCE, Chennai (2012-TIOL-369-CESTAT-MAD)
Parameswari Textiles Vs CCE, Trichy (2011-TIOL-1014-CESTAT-MAD)
Flat Products Equipments India Limited Vs CCE, Belapur (2011-TIOL-781-CESTAT-MUM)
Hydraulics India Services Pvt. Ltd. v. CCE, Bangalore (2011-TIOL-1752-CESTAT-BANG)
Super Spinning Mills Ltd. v. CCE, Coimbatore 2009-TIOL-2083-CESTAT-MAD
Semco Electrical Pvt. Ltd. v. CCE, Pune 2010-TIOL-162-CESTAT-MUM
Repro India Ltd. v. UOI 2007-TIOL-795-HC-MUM-CX
Texport Industries Pvt. Ltd. v. CCE 2012-TIOL-26-CESTAT-MUM
In a recent case of Dhariwal Industries Ltd (2013 (289) E.L.T. 227 (G.O.I.), it has been held by the Revisionary Authority that:
"It is Government policy that export should not suffer any duty. Once the substantial requirement of export out of country of the goods manufactured by the assessee is proved, the substantive benefit of rebate cannot be denied for alleged conflict between provisions"
Despite the law having been clarified in favour of manufacturer exporters, unwanted litigation and 'let the Court decide' approach has become the order of the day. No quasi judicial authority is willing to get the reprimand and review by superiors as the harsh experience inZ.B.Nagarkar case (2002-TIOL-130-SC-CX) haunts them as the 'sword of Damocles'. In this case, the Commissioner passed an adjudication order for confiscation of the seized goods, illegally removed goods, imposed fines for redemption and demanded duty. He also confiscated the vehicle used in the carriage of the contraband goods but he did not impose any penalty under Rule 173Q of the Central Excise Act. Not contended with this, the Government charged him under the Conduct Rules. Appeals at Tribunal and High Court failed and finally he approached the Supreme Court for vacation of the charge-sheet. Hon Supreme Court held "If every error of law were to constitute a charge of misconduct, it would impinge upon the independent functioning of quasi-judicial officers"
None can deny the fact that unnecessary litigation harasses the assessees and also adds to cost of production by way of litigation costs, wastage of valuable time and block of money. Recent Biennial Report of Hon'ble Delhi High Court (2010-12) states that average Court expenditure incurred per minute per Court working is Rs 15678/-. If it is so, how much an assessee has to spend for bringing a case before High Court after passing through different adjudication channels?
Hon Gujarat High Court  in Commissioner of Central Excise v. M/s Cadila Healthcare Limited(2013-TIOL-12-HC-AHM-ST) ruled that the commission agent services cannot be stated to be a service used directly or indirectly in, or, in relation to manufacture or clearance of final product. Following the judicial discipline, CESTAT, Ahmadabad also allowed the Revenue Appeal so as to deny CENVAT credit in the following cases too.
- CCE, Daman Vs Paras Motors Mfg Co- (2013-TIOL-525-CESTAT-AHM)
- CCE, Surat-II Vs Astik Dyestuff P Ltd - (2013-TIOL-680-CESTAT-AHM)
It is a fact that Gujarat accounts for about a quarter of India's total exports. Based on the aforesaid decisions, Departmental Officers, especially in the State of Gujarat are thoroughly armored and empowered to disallow CENVAT credit on commission paid on one fourth of the entire country's export.
Contrary to the above, in the case of CCE, Ludhiana Vs. Ambika Overseas 2011-TIOL-951-HC-P&H-ST, Hon'ble Punjab & Haryana High Court upheld that Department was unable to show any perversity or illegality in the Tribunal's decision to the effect that the assessee was entitled to avail CENVAT credit on the services provided by the overseas commission agents as input services within the meaning of the definition of "input service" given under Rule 2(l) of the CENVAT Credit Rules 2004.
It is now a well settled principle of law that when two views are possible, one which favours the assessee should be adopted. (Sneh Enterprises Vs CCE, New Delhi 2006-TIOL-114-SC-AD)
While introducing CENVAT Credit Rules, 2004, Ministry of Finance issued a Press Note on 12th Aug, 2004 regarding CENVAT credit facility of taxable services. The relevant portion of the Press Note reads as under:
"In principle, credit of tax on those taxable services could be allowed that go to form a part of the assessable value of which excise duty is charged"
Hence it is obvious that since the service on which CENVAT credit is availed forms a part of the assessable value of final product, Service Tax paid on such services will be eligible for CENVAT credit as "input service". Wherever Sales commission paid to the commission agents forms part of the assessable value on which excise duty is payable, there is no rationale behind denial of such credit. It is settled law laid down by the Hon'ble Supreme Court in the case of Coromandel Fertilisers Ltd vs Union of India & Ors 2002-TIOL-343-SC-CX that commission paid to a commission agent is not available as deduction from the assessable value, which would inevitably mean that Excise duty is payable on the total value including the so called commission.
In the CBEC Circular No 943/04/2011-CX, dated April 29, 2011, it has been clarified as follows:
Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression "activities related to business"?
The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis.
Further, CBEC has issued Notification No 17/08-ST dated 1st Apr, 2008 wherein the exemption by way of refund is provided for the service tax paid on the "Services provided by a commission agent, located outside India, and engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him"
Vide Not No 18/09-ST dated 7th July, 2009, the exemption from payment of Service Tax on the services provided by overseas commission agents has been provided subject to the filing of EXP-1 and half yearly Return in EXP-2. In view of the above, it is evident that the ultimate intention of Government is to exempt Service Tax on commission either by way of exemption, CENVAT credit or refund.
In the CBEC Circular No 120/01/2010-ST. dated: January 19, 2010, it has been clarified that:
"There cannot be different yardsticks for establishing the nexus for taking of credit and for refund of credit. Even if different phrases are used under different rules of CENVAT Credit Rules, they have to be construed in a harmonious manner"
It has been held in CCE, Jalandhar Vs Ambika Forgings 2010 (259) E.L.T. 593 (Tri. - Del.)that once the legislative mandate is apparent, no technical meaning need to be assigned to deny relief.
Further, Appeal filed by Revenue has been rejected by the Principal Bench of Hon CESTAT-Delhi in the case of CST Vs Convergys India Pvt. Ltd. (2009-TIOL-888-CESTAT-DEL) upholding the above principle that "there cannot be two different yardsticks, one for permitting credit and the other for eligibility for granting rebate. Whatever credit has been permitted to be taken, the same are permitted to be utilized and when the same is not possible there is provision for grant of refund or as rebate"
Hon Apex Court in the case of Ramala Sahkari Chini Mills Ltd. Vs CCE, Meerut 2010-TIOL-102-SC-CX held that "Generally word 'include' should be given wide interpretation - By employing such word, legislature intends to bring in, by legal fiction, something within accepted connotation of substantive part - Regard must be had to context in which the word 'includes' appears to determine whether such word has enlarging effect".
Rule 2 (l) of CENVAT Credit Rules includes myriad of services including sales promotion and also covers excluded services of various types. When excluded services are specifically mentioned in the Rules, there is no reasoning to stretch it further to other services. In this regard, Hon CEGAT, Calcutta in Collector of C. Ex. Vs Heavy Engineering Corporation Ltd. 1990 (49) E.L.T. 531 (Tribunal) held that:
"What are excluded from the scope of an expression in a legal provision by such an exclusion clause are only those items mentioned specifically in the exclusion clause. This cannot be stretched by analogy to other items not so specifically mentioned, unlike an inclusion clause where the items covered by the expression would not be confined to those so included. The items included are illustrative and not exhaustive. Contrarily, the items excluded are exhaustive and not illustrative"
Certainty in taxation is a fundamental canon of taxation, and if that is not followed, there will be confusion/chaos in tax administration as held by Hon Tribunal in Kinetic Engineering Vs CCE, Pune – 2012-TIOL-508-CESTAT-MUM.
The maxim "Nec quicquam acrius quam pecuniæ damnum stimulat" reminds us that" Nothing stings more deeply than the loss of money". Nobody would like to part with the hard earned money due to anomalies in taxation but how many can afford to litigate and escalate the same to the highest forum?
On the one side, Government mandates payment of Service Tax on reverse charge method for the services received from overseas commission agents and it is being exempted, refunded or made CENVA Table through various Notifications and clarificatory Circulars with the ultimate motive of avoiding cascading effect of taxes and also to zero rate exports. But it is a paradox that this is being disallowed at the other side by field formations. It is high time for the Government to intervene and streamline the process of CENVAT flow to the manufacturing community and to instruct field formations to refrain from accusations and objections on technical grounds.

--

G.K. Choksi & Company vs Commissioner Of Income Tax, ... on 27 November, 2007
 
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IT: Date of agreement to sell cannot be treated as date of transfer of immovable property, it should be date on which delivery of possession is given and entire sale consideration is received
■■■
[2013] 35 taxmann.com 46 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Smt. Shail Moti Lal
v.
Commissioner of Income-tax, Chandigarh*
HEMANT GUPTA AND MS. RITU BAHRI, JJ.
IT APPEAL NOS. 153 AND 154 OF 2012
JANUARY  29, 2013 
Section 54, read with section 2(47), of the Income-tax Act, 1961 - Capital gains - Profit on Sale of Property Used for Residence - Assessment year 2005-06 - Appellant entered into agreement to transfer rights in property 'A' on 27-12-2002 after receipt of earnest money of Rs. 15 lakhs - Sale deed was executed on 24-9-2004 when entire sale consideration of Rs. 1.32 crores as received - Appellant purchased property 'B' on 31-4-2003 and claimed deduction under section 54 - Whether since there was delivery of possession and receipt of entire sale consideration was on date of execution of sale deed on 24-9-2004, it was date of transfer of property A and date of agreement to sell on 27-12-2002 could not be treated as date of transfer of this property - Held, yes - Whether, resultantly, date of purchase of property B being prior to one year of transfer of right in property A, assessee was not entitled to deduction under section 54 - Held, yes [Paras 6 & 7] [In favour of revenue]
FACTS
 
 The appellant entered into an agreement to transfer rights in property A on 27-12-2002 after receipt of earnest money of Rs. 15 lakhs. In pursuant to the said agreement, the sale deed was executed on 24-9-2004 when the entire sale consideration amounting to Rs. 1.32 crores was received.
 The appellant purchased another property 'B' via sale deed dated 31-4-2003 and claimed deduction under section 54 from the levy of capital gain in respect of sale consideration received from the transfer of property 'A'.
 The Tribunal held that the appellant was not entitled to deduction under section 54 as the property was purchased on 30-4-2003, i.e., before one year of transfer of right in property 'A' on 24-9-2004.
 On Appeal:
HELD
 
 The basic question is: as on what day, the assessee has transferred rights in property. The appellant has received only Rs. 15 lacs as the amount of earnest money out of total sale consideration of Rs. 1.32 crores. The balance payment was received only on 24-9-2004. A finding of fact has been recorded by the Tribunal that there was no delivery of possession prior to 24-9-2004 nor the entire sale consideration received prior to execution of the sale deed. [Para 6]
 In view of the said fact, the date of agreement to sell cannot be treated as date of transfer of immovable property. Even in terms of section 54 of Transfer of Property Act, 1882, an agreement to sell does not create any interest in the immovable property. With the execution of the agreement, it cannot be said that the appellant transferred any right in favour of the purchaser. [Para 7]
Akshay Bhan for the Appellant. Ms. Urvashi Dhugga for the Respondent.
ORDER
 
Hemant Gupta, J. - This order will dispose of two appeals bearing I.T.A. No.153 of 2012 and I.T.A. No.154 of 2012. For the sake of convenience, the facts are being taken from I.T.A. No.153 of 2012.
2. The present appeal under Section 260-A of the Income Tax Act, 1961 (for short `the Act') arises out of an order passed by the Income Tax Appellate Tribunal, Chandigarh Bench `B', Chandigarh (for short 'the Tribunal') on 20.01.2012 pertaining to assessment year 2005-2006 holding that the appellant is not liable to deduction under Section 54 of the Act. The assessee has claimed that the following substantial questions of law arise for consideration by this Court:
"(i) Whether in facts and circumstances of the case, the action of the ld. authorities below in denying the deduction u/s 54 of the Act by ignoring the fact that it is date of transfer which is to be considered and not the date of registration of the sale deed for computing the time period for the purposes of allowability of deduction u/s 54 of the Act is legally unsustainable in the eyes of law?
(ii) Whether in fact and circumstances of the case, the action of the authorities below in acting on its own presumptions and ignoring the law laid down with respect to the date of registration being insignificant for the purposes of computation of capital gains and section 54 of the Act is legally unsustainable in the eyes of law?
(iii) Whether in facts and circumstances of the case, the action of the ld. Courts below in denying deduction on account of amount spent on construction of new asset despite the fact that the details of the payments made to various persons has been made available on record and by ignoring substantial documented evidence placed on record is legally unsustainable in the eyes of law?
(iv) Whether in fact and circumstances of the case, the action of the authorities below erred in ignoring the requirement of law that the assessee is required to construct a new house and not that the assessee should utilize the amount which he obtained by way of sale consideration for the purpose of meeting the cost of the new asset and is therefore legally unsustainable in the eyes of law?
(v) Whether in fact and circumstances of the case, the action of the authorities below, the impugned orders Annexure A-1 to A-3 are legally sustainable in the eyes of law?"
3. The appellant entered into an agreement to transfer rights in property bearing House No.267, Sector 9-C, Chandigarh on 27.12.2002 after receipt of earnest money of Rs.15 lacs. In pursuance of the said agreement, the sale deed was executed on 24.09.2004 when the entire sale consideration amounting to Rs.1.32 crores was received.
4. The appellant purchased another property bearing House No.528, Sector 8, Chandigarh vide sale deed dated 31.04.2003 and claimed deduction from the levy of capital gain in respect of sale consideration received from the transfer of property in Sector 9, Chandigarh. The learned Tribunal held that the appellant is not entitled to deduction as the property was purchased on 30.04.2003 i.e. Before one year of transfer of right in the immovable property on 24.09.2004.
5. Learned counsel for the appellant relies upon Section 2(47) of the Act to contend that the transfer is effected when the possession of property is taken or retained in part performance of the contract. Therefore, the appellant is entitled to deduction from the capital gains as the appellant has transferred the property on the date of agreement i.e. 27.12.2012.
6. The basic question is; as on what day, the assesee has transferred rights in property. The appellant has received only Rs.15 lacs as the amount of earnest money out of total sale consideration of Rs.1.32 lacs. The balance payment was received only on 24.09.2004. A finding of fact has been recorded by the Tribunal that there was no delivery of possession prior to 24.09.2004 nor the entire sale consideration received prior to execution of the sale deed.
7. In view of the said fact, the date of agreement to sell cannot be treated as date of transfer of immovable property. Even in terms of Section 54 of Transfer of Property Act, 1882, an agreement to sell does not create any interest in the immovable property. With the execution of the agreement, it cannot be said that the appellant transferred any right in favour of the purchaser.
8. Consequently, we do not find that any substantial question of law arises in the present appeal.
Dismissed.
SB
IT : As per the scheme of the Act and the Board circular, for taking benefit under section 54EC, it is not necessary that one should first apply section 70(3) and thereafter only, the assessee could invest the capital gain arising from the long term capital asset to any specified bond as specified under section 54EC
Facts
• Relevant assessment year 2003-04.
• Assessee sold shares and made long-term capital gains.
• Assessee invested entire long-term capital gains from sale of shares in bonds specified under section 54EC and claimed entire amount of capital gains as exempt.
• Assessee had also long-term capital losses from sale of shares and properties which he carried forward
• AO accepted the above treatment of assessee in assessment under section 143(3).
• But CIT under section 263 held assessment as prejudicial to revenue. He held that the long-term losses should have first been set off against long-term capital gains and then deduction under section 54EC allowed
• Assessee appealed to ITAT. ITAT decided in assessee's favour. Hence present appeal was filed by revenue against ITAT's order
Rival viewpoints on how to apply sec. 54EC & sec. 70(3) illustrated
   Revenue's view Assessee's view  
  Long-term capital gains from sale of shares 100100  
  Less: Set-off of long-term capital losses from sale of properties under section 70(3) 70-----  
  Less: Deduction under section 54EC 30100  
  Taxable capital gains from sale of shares under section 45 NILNIL  
  Carry forward of long-term capital losses under section 70(3) NIL70  
Held
• If, for working out the relief under section 54, the Revenue does not insist upon the applicability of section 70(3), there is no acceptable reason as to how section 70(3) would stand attracted in the case of section 54EC.
• Revenue's argument is that for the purpose of working out the relief under section 54 EC, one has to take recourse first to section 70(3) and then only look at section 54 EC. This argument deserves to be rejected
• A reading of section 70(3) shows that the loss that has to be looked at first is not with reference to the loss arising in respect of any new capital asset, but in the totality of the loss suffered on the sale of capital asset chargeable to tax under section 45.
• On the other hand, section 54EC is specific with reference to investment in specified bonds as regards the capital gain arising from and out of a long term capital asset.
• Thus going by the scheme of the Act, for taking benefit under section 54EC, it is not necessary that one should first apply section 70(3) and thereafter only, the assessee could invest the capital gain arising from the long term capital asset to any specified bond as specified under section 54EC.
• Revenue's appeal dismissed. ITAT's order confirmed.
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[2013] 35 taxmann.com 228 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Circle - XIV
v.
Vijay M. Mahtaney
MRS. CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
TAX CASE (APPEAL) NO. 152 OF 2010
JUNE  18, 2013 
J. Narayanaswamy for the Appellant. R.Vijayaraghavan for the Respondent.
JUDGMENT
 
Mrs. Chitra Venkataraman, J. - The above Tax Case (Appeal) is filed at the instance of the Revenue against the order of the Income Tax Appellate Tribunal for the assessment year 2003-04 by raising following substantial question of law:
"Whether, on the facts and circumstances of the case, the Tribunal was right in deciding that, first, the computation of capital gain has to be given effect to and then only apply the provisions of Section 70 of the Income Tax Act?"
2. It is seen from the facts narrated that the assessee herein made a long term capital gain to the tune of Rs.6,42,22,435/- on the sale of shares. Admittedly, the assessee had invested the long term capital gains in REC Bonds to the tune of Rs.6,50,00,000/-. Apart from this, there were long term capital loss on sale of shares and immovable properties which were claimed to be carried forward to the subsequent years. The Assessing Officer apparently agreed with the assessee on this state of affairs. However, in exercise of jurisdiction under Section 263 of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) viewed that as per Section 74(1) of the Income Tax Act, the loss relating to the long term capital asset shall be first set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short term capital asset and then only the exemption under Section 54 EC would apply. He thus held that the assessment completed under Section 143(3) of the Income Tax Act is thus erroneous and prejudicial to the interest of the Revenue requiring revision of assessment. While summarily rejecting the assessee's reply based on Section 54 EC, the Commissioner of Income Tax (Appeals) directed the Assessing Officer to redo the assessment.
3. Aggrieved by the same, the assessee went on appeal before the Income Tax Appellate Tribunal. The Tribunal pointed out that even though Section 45(1) does not specify Section 54EC as had been done by erstwhile Sections 54, 54A, 54B, 54EA, 54EB and 54F, yet, going by the import of Section 54EC(1)(a) and (b), the assessee was entitled to take advantage of the said provisions even before working out Section 70. Pointing out to the scheme of Sections 45 to 55A which provide for the computation of capital gains, the Tribunal held that effect has to be given first to the provision of capital gains as given under the above scheme and then apply the provisions of Section 70. It viewed that Section 70 would come into play only when the capital gains have been computed in accordance with the provisions contained in Sections 45 to 55A. Irrespective of whether Section 54EC(1) is found in Section 45 or not, in terms of Section 54EC, the effect of it cannot be ignored, as the investment in REC bonds takes the capital gains out of the charging provision. Since the amount invested in REC bonds does not enter into the computation at all, the revision done was not sustainable in law. Consequently, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals). Aggrieved by this, present appeal has been filed by the Revenue.
4. Before going into the contentions raised herein, the relevant provisions of Sections 45(1), 54EC and 70 of the Income Tax Act, relevant to the assessment years, have to be noted, which read as follows:-
Capital gains.
Section 45(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54 EA, 54 EB, 54F, 54G and 54H, be chargeable to income tax under the head "capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.
Capital gain not to be charged on investment in certain bonds.
Section 54 EC (1) Where the capital gain arises from the transfer of a long term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of the capital gains in the long term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this Section, that is to say-
(a)  if the cost of the long term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under Section 45.
(b)  if the cost of the long term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long term specified asset bears to the whole of the capital gain, shall not be charged under Section 45.
Set off, or carry forward and set off.
Set off of loss from one source against income from another source under the same head of income.
Section 70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than "Capital gains", is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.
(2) Where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any short term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.
(3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short term capital asset.
5. Thus consequent on insertion of Section 54 EC, sunset clauses were inserted under the Finance Act, 2000 dated 1.4.2001 in Section 54 EA and Section 54 EB to cover cases of transfer of long term capital asset made before 01.04.2000. Explaining the introduction of the said provisions, the Board, by its Circular in Circular No.794 dated 9th August, 2000, in paragraph 30, stated as follows:-
30. Sunset Clauses to Sections 54EA and 54EB and introduction of a new Section 54EC to ensure focussed investment of capital gains in agricultural finance and highway infrastructure.
30.1 Under the existing provisions, sections 54EA and 54EB of the Income Tax Act offer a basket of investment options to absorb taxable capital gains arising from transfer of long term capital assets. The notified instruments providing the roll-over to capital gains include shares, bonds, units and deposits of banks and various other instruments. The two sections were introduced in 1996 to give an incentive to the development of infrastructure. However, the objective has been diluted in the presence of a large number of varied and diverse instruments. Further, incentives to infrastructure are also available under other sections of the Income Tax Act such as sections 80-IA, 80-IB and 10(23G). In a regime of low tax rate on long term capital gains, there is very little justification for having such an omnibus basket of exemptions. Therefore, it has been decided to insert sun-set clauses to sections 54EA and 54EB limiting their application to transfers of long term capital asset made on or before 31st March 2000. Where the capital gain has arisen on transfers made before 31st March, 2000, the investments in notified securities can be made under Sections 54EA and 54EB beyond that date but within the stipulated period.
30.2 In place of sections 54EA and 54EB, which are being terminated, a new section namely, 54EC, has been inserted for transfer of capital assets made on or after 1st April, 2000. The new section will allow exemption from tax on long term capital gains, if invested in bonds, targeted exclusively on agricultural finance and highway infrastructure. The instruments in question shall be bonds, redeemable after three years, to be issued by the National Bank for Agriculture and Rural Development (NABARD) and the National Highway Authority of India (NHAI). The exemption from long term capital gains shall be to the extent of investment in these bonds.
30.3. These bonds will have a lock in period of three years. Any transfer or conversion of bonds into money during the lock-in period will make the amount so converted as deemed capital gains taxable in the year of transfer or conversion. Such deemed capital gain will also arise, if any loan or advance is taken on the security of these bonds. Further, any amount invested in these bonds will not be eligible for deduction under Section 88 of the Income Tax Act.
30.4 These amendments will take effect from 1st day of April, 2001 and will accordingly apply to the assessment year 2001-2002 and subsequent years.
6. Thus, going by the circular issued and the insertion of Section 54EC is only a substitute in the place of Section 54EA and Section 54EB to cover cases of transfer of long term capital asset on and from 01.04.2001, we do not find that the argument of the Revenue by reason of Section 45, not excluding the operation of Section 54EC, the other provisions under Section 54EC would stand at different footing from that of similarly worded other provisions under the said Chapter. It may further be seen that as per Section 54EC(1)(a) on the capital gains arising from the transfer of long term capital asset invested in accordance with the said Section, capital gains shall not be charged under Section 45.
7. Secondly, one may also note that Section 54EC does not specifically mention about specified nature of transfer or of any specified long term capital asset. On the other hand, it merely speaks about the "capital gain arising out of a long term capital asset".
8. Contrast this with Section 54 which deals with capital gains arising on sale of property used for residence. Section 54 specifically provides that in the case of capital gains arising from the transfer of long term capital asset, being a residential house, exemption would be available if the assessee has purchased within a period of one year before or two years after the date on which the transfer took place, a residential house or within a period of three years after that date, constructed the residential house. Section 54(2) provides that the amount of capital gains not appropriated by the assessee towards the purchase of the new asset or purchase and construction of the new asset before the date specified in Section 54(1), shall be deposited in the specified Bank or institution and utilised in accordance with any scheme which the Central Government may notify. Section 54B deals with capital gain on transfer of land used for agricultural purposes not to be charged. Section 54D deals with Capital gain on compulsory acquisition of lands and buildings not to be charged. Section 54E deals with capital gain on transfer of capital assets not to be charged. Section 54EA deals with Capital gain on transfer of long-term capital assets not to be charged in the case of investment in specified bonds or debentures and Section 54EB deals with capital gain on transfer of long-term capital assets not to be charged.
9. A reading of Section 54EC shows that it replaced Sections 54EA and 54EB by the Finance Act, 2000 with effect from 01.04.2001, with the result that the benefit of Section 54EA and 54EB ceased to be available with reference to transfer of long term capital assets before 01.04.2000. Thus relief of transfer under Section 54EC is available in respect of transfers from the accounting year relevant to the assessment year 2001-02 to preserve the continuity of the benefit of deduction with the only difference that Section 54EC limits the available bonds for purposes of reinvestment benefit with the minimum lock in the period of three years. The bonds available for benefit under Section 54E are part of the statute itself. Thus Section 54EA and 54EB would have relevance to the transfer of long term capital before 01.04.2000 and Section 54EC, to the transfer made on or after 01.04.2001.
10. Thus, if, for working out the relief under Section 54, the Revenue does not insist upon the applicability of Section 70(3), we do not find any acceptable reason as to how Section 70(3) would stand attracted in the case of Section 54EC. Thus, we reject the argument of the Revenue that for the purpose of working out the relief under Section 54 EC, one has to take recourse first to Section 70(3) and then only look at Section 54 EC. A reading of Section 70(3) shows that the loss that has to be looked at first is not with reference to the loss arising in respect of any new capital asset, but in the totality of the loss suffered on the sale of capital asset chargeable to tax under Section 45. On the other hand, Section 54EC is specific with reference to investment in specified bonds as regards the capital gain arising from and out of a long term capital asset. Thus going by the scheme of the Act and the Board circular, we accept the plea of the assessee that for taking benefit under Section 54E, it is not necessary that one should first apply Section 70(3) and thereafter only, the assessee could invest the capital gain arising from the long term capital asset to any specified bond as specified under Section 54EC.
11. In the light of the above, we find no error in the order of the Tribunal in setting aside the order of the revision made by the Commissioner of Income Tax (Appeals). In the circumstances, we reject the appeal, thereby, confirm the order of the Tribunal. The above Tax Case (Appeal) is dismissed. No costs.

IT: Where futures and options transactions were supported with time stamped contract notes issued by brokers containing client code and PAN of assessee and transactions were routed through recognized stock exchange, losses in such transactions were business losses and not speculative losses
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[2013] 35 taxmann.com 8 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'B'
Assistant Commissioner of Income-tax
v.
Naishad I. Parikh*
D.K. TYAGI, JUDICIAL MEMBER 
AND T.R. MEENA, ACCOUNTANT MEMBER
IT APPEAL NO. 2814 (AHD.) OF 2011
[ASSESSMENT YEAR 2008-09]
JANUARY  4, 2013 
Section 28(i), read with section 43(5), of the Income-tax Act, 1961 - Business loss/deduction - Allowable as [Share trading losses] - Assessment year 2008-09 - Assessing Officer disallowed assessee's claim of share trading and futures and options losses on ground that entries of transactions were not made in books of account and that audit was not made - Whether since loss on futures and options transactions were supported with time stamped contract notes issued by brokers containing client code and PAN of assessee and transactions were routed through recognized stock exchange, losses in such transactions were business losses and not speculative losses - Held, yes - Whether as far as losses on share tradings were concerned, since assessee had not proved that share loss was not speculative loss or delivery of shares had been taken by assessee, issue was to be set aside to file of Assessing Officer for deciding same afresh - Held, yes [Para 5] [Partly in favour of assessee]
FACTS
 
 The assessee was engaged in the shares and futures and options transactions.
 The Assessing Officer disallowed assessee's claim of share trading and futures and options losses on ground that entries of transactions were not made in books of account and that audit was not made. Accordingly, the Assessing Officer treated such losses as speculative losses.
 The Commissioner (Appeals) held that assessee's transactions were business in nature and losses suffered by the assessee were business losses. The Commissioner (Appeals) also held that the alternative argument of the Assessing Officer that these losses will be speculative was not correct since said trading transactions had resulted in actual delivery and derivative transactions were excluded from the definition of speculative transactions under section 43(5).
 On second appeal:
HELD
 
 The assessee had followed the consistent method of computation of income/loss from the earlier year for which necessary evidence has been placed on record. It is true that this item should not be debited directly in capital account, but debited in consolidated P&L a/c of the appellant. But the assessee had filed all the evidence of claiming loss before the Assessing Officer from the accounts of brokers' books which includes a copy of contract note issued by the brokers containing unique client code and PAN of the assessee. In audit report also, the nature of activity had been mentioned as professional consultant and share trading. The balance sheet as well as capital account have been audited by the chartered accountant. The credit balance of capital as on 31-3-2008, has been transferred to audited balance sheet. But for share loss, the assessee had not submitted any evidence whether any delivery of shares has been taken or not. Whereas, the loss on future trading claimed by the assessee at Rs. 40,43,471 for which supporting evidences with time stamped contract notes issued by the brokers containing unique client code and PAN of the assessee had been submitted by the assessee before the Assessing Officer. The assessee has shown the unsecured loan for this purpose from 'J.M'. in the balance sheet.
 From assessment year 2005-06, under section 43(5), the future and option transaction had been excluded from the purview of speculation, if the transactions are carried out at recognized stock exchange and time stamped contract notes were issued. The assessee had routed this transaction through recognized stock exchange notes. Thus, revenue's appeal on future and option transaction is dismissed.
 But the assessee had not proved before the Assessing Officer as well as Commissioner (Appeals) that share loss was not speculative loss or delivery of shares has been taken by the assessee or not. Thus, for limited purpose, this issue is set aside to the Assessing Officer. [Para 5]
CASES REFERRED TO
 
Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) (para 4) and Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC) (para 4).
Y.P. Verma for the Appellant. S.N. Soparkar and Ms. Urvashi Shodhan for the Respondent.
ORDER
 
T.R. Meena, Accountant Member - This is an appeal at the behest of the Revenue which has emanated from the order of CIT(A)-6, Ahmedabad, order dt. 8th Sept., 2011 for asst. yr. 2008-09. The effective grounds of appeal are as under :
"(1)  Whether the learned CIT(A) is right in holding that assessee cannot be penalized just because he did not make the accounting entries properly ?
(2)  Whether on the basis of loss claimed in the computation of income filed along with return and taken to capital account, the claim of loss can be allowed ?
(3)  Whether statutory audit under s. 44AB is applicable in this case as the assessee's loss claim is exceeding the statutory turnover prescribed ?
(4)  Whether loss claim of Rs. 66,52,220 on account of loss in share trading and F.O. activity can be allowed without statutory audit under s. 44AB ?
(5)  It is, therefore, prayed that the order of the CIT(A) being perverse on facts and law on the above grounds be set aside and that of the AO be restored."
2. The factual matrix of the case is as under :
"3.1 The AO has stated in the assessment order dt. 16th Dec, 2010 which is as under :
"The above plea of the assessee circumvents the real issue at stake for the following reasons:
(a)   The assessee might have entered the amount of loss in the capital account being a of the Form No. 3CD/3CB. However, the income/loss as per the audited account does not give even a cursory mention of the loss of Rs. 66.52 lacs claimed to have been incurred in the share trading activity.
(b)  The Annexure to Form No. 3CD, which shows the comparative business results of assessee, in part B thereof, shows the 'gross receipts' as Rs. 39,50,000 and the "net profit' as Rs. 28,19,250,
(c)  The audit report does not cover the turnover in the share trading activity.
(d)  The loss claimed to have incurred in share trading activity is not even cursorily mentioned in the part B or the P&L a/c.
(e)  Column 9(b) of the Form No. 3CB mentions the books of account maintained by assessee and examined by the auditor as cash book, bank book, ledger and journal ledger,
(f)  The assessee's claim that the loss as well as the share trading activity has been covered in the audit report, 'because the account of M/s J.M. Financial Services future account has been routed through the audited accounts' does not hold any relevance because this account does not bifurcate the credits in the account between repayments and profits and also does not bifurcate the debits in the accounts as loan charges and losses.
(g)  The assessee has not prepared a trading account in shares on its own. The figure of loss so claimed has been transcribed from the account extract or the debit note issued by M/s J.M. Financial Services.
(h)  The assessee has not shown any opening stock or any closing stock in respect of this so claimed trade.
(i)  For the residuary claim of the assessee that the loss is the part of the audited account 'because the same has been mentioned in the capital account' is an immaterial and insignificant claim because the above capital account shows many such entries which do not have even a far-fetched connection with the business activity, profession of consultancy, which was actually subjected to audit, as under :
 (i) Credit card expensesRs. 2,09,367
 (ii) GiftRs. 1,00,000
 (iii) Loss on future tradingRs. 40,43,471
 (iv) Loss on share tradingRs. 19,46,113
 (v) Different heads of salary 
 (vi) Different capital gains receipts 
(j)  Merely mentioning 'share trading' in column 8(a) of Form No. 3CD does not mean that the particular activity and the business results therein have been subjected to audit under s. 44AB unless and until the data has been incorporated in the P&L a/c and the balance sheet accompanying the audit report.
From the reasons recorded as above, the claim of loss of Rs. 66,52,220 cannot be allowed both legally and factually as under :
(i)  The loss claimed is not part of the regular books of account.
(ii)  The activity from which the loss is claimed to have emanated has not been subjected to statutory audit under s. 44AB.
(iii)  The P&L a/c of the above activity has not been drawn.
(iv)  Without prejudice to the three reasons mentioned above, the loss is at the most to be qualified as a speculation loss which cannot be set off against other income as per sub-s. (1) of the s. 73 of the IT Act.
As discussed above, the loss claim of Rs. 66,52,220 is hereby disallowed. Penal proceedings under s. 271(l)(c) are separately initiated for concealment of income by filing untrue and inaccurate particulars. Penal proceedings under s. 271B are also initiated for not getting the accounts audited in respect of the share trading business."
3. Being aggrieved by the order of the AO, the assessee carried the matter before CIT(A) who has allowed the appeal in favour of the assessee, which is reproduced as under :
"3.3 I have considered the facts of the case, assessment order and appellant's submission. AO disallowed appellant's claim of share trading and F&O losses along with OD interest as personal in nature since these transactions were not routed through P&L a/c. It is not in dispute that appellant submitted copy of bills and contract notes in respect of shares and futures and options transactions. There is no dispute over the quantum of loss computed by the appellant. The disallowance of losses is on account of reasons mentioned by the AO in para 4.2 on p. 6 of assessment order. The reasons are : loss is not part of regular books of account, activity from which losses claimed has not been subjected to audit under s. 44AB and P&L a/c of the above activity was not, drawn. From this, it can be seen that AO disallowed the losses only on the grounds that entries of transactions were not made in books of account and that audit was not made. Appellant submitted that the ledger account of share trading and futures and options transactions and working of profit/loss were submitted to the AO. The same were also audited while auditing capital account. Copies of accounts from brokers' books were also submitted. Apart from these, the transactions are supported with time stamped contract notes issued by the brokers containing unique client code and PAN of the appellant. In the audit report also, the nature of activity was clearly mentioned as consultancy and share trading. The share trading and futures and options transactions were incorporated in the books and from trial balance, P&L a/c capital account and balance sheet were prepared and audited. Appellant met all three arguments of the AO and proved that the losses suffered were genuine in view of steep decline in share market from January, 2008.
Sec. 43(5) has excluded futures and options transactions from the purview of speculation from asst. yr. 2005-06 if the transactions are carried out at recognised stock exchange and time stamped contract notes were issued. Since these transactions were through a recognized stock exchange and time stamped contract notes were issued, the transactions of the appellant fulfilled the criteria of business. The transactions in futures and options cannot be capital since there is no element of investment. Only margin moneys are paid for carrying out transactions which are otherwise speculative in nature but because of amendment to s. 43(5), treated as normal business transaction, in view of this, the losses suffered by the appellant in futures and options transactions and also share trading transactions are business losses and not speculative losses. I found that the entries of these transactions have been made in the books of account but the net results of the same were taken to capital account of the appellant. The gross transaction value should have been taken to P&L a/c but the net result of the same will not be different. In view of this, appellant cannot be penalised just because he did not make accounting entries properly. While determining the taxable income, one has to see the substance and not the form in which the transactions were presented.
In view of the aforesaid discussion, it is clear that the appellant's transactions are business in nature and accordingly the losses suffered by the appellant are business losses. The alternative argument of the AO that these losses will be speculative is not correct since said trading transactions have resulted in actual delivery and derivative transactions are excluded from the definition of speculative transactions under s. 43(5). In view of this the addition made by the AO is deleted."
4. Now, the Revenue is before us. Learned senior Departmental Representative vehemently argued that the appellant had not maintained proper books of account to calculate the correct income from the share business. The learned Departmental Representative relied on cases of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) and Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC) and argued that the matter of the taxability cannot be decided on the basis of the entries which the assessee may choose to make in his accounts but has to be decided in accordance with the provisions of law. Thus, he has requested to reverse the order of the CIT(A). At the outset, learned Authorised Representative filed the paper book which includes the copy of the audit report of the assessee for asst. yr. 2007-08 and for asst. yr. 2008-09. He has particularly drawn our attention on capital account for asst. yr. 2007-08 where the appellant had debited share trading loss of Rs. 5,37,701 which has been adjusted in the computation of income for asst. yr. 2007-08. Similarly, the same accounting system had been followed by the appellant in asst. yr. 2008-09 and has drawn our attention on capital account of the assessee wherein the loss on future trading has been debited at Rs. 40,43,471 and loss on share trading at Rs. 19,46,113 which has been adjusted against other business income in computation of income in the year under consideration by the appellant. Similar treatment has been also given in asst. yr. 2009-10 by the appellant, for which necessary papers have been filed by the appellant in paper book. Learned counsel for the appellant had stated that he had submitted the audit report in prescribed performa which has been duly signed by the chartered accountant as per IT Rules. On that basis, the loss on share was claimed in the computation of income. The assessee was in the consultancy as well as share trading business during year under consideration.
5. We have heard the rival contentions of both the sides and perused the material before us. The appellant had followed the consistent method of computation of income/loss from the earlier year for which necessary evidence has been placed on record. It is true that this item should not be debited directly in capital account but debited in consolidated P&L a/c of the appellant. But the appellant had filed all the evidence of claiming loss before the AO from the accounts of brokers' books which includes a copy of contract note issued by the brokers containing unique client code and PAN of the appellant. In audit report also, the nature of activity had been mentioned as professional consultant and share trading. The balance sheet as well as capital account have been audited by the chartered accountant. The credit balance of capital as on 31st March, 2008, has been transferred to audited balance sheet at Rs. 2,22,87,082. But for share, loss, the appellant had not submitted any evidence whether any delivery of shares has been taken or not. Whereas, the loss on future trading claimed by the appellant at Rs. 40,43,471 for which supporting evidences with time stamped contract notes issued by the brokers containing unique client code and PAN of the appellant had been submitted by the appellant before the AO. The appellant has shown the unsecured loan for this purpose from M/s J.M Financial Products Ltd. at Rs. 70,05,438 in the balance sheet. From asst. yr. 2005-06, under s. 43(5), the future and option transaction had been excluded from the purview of speculation, if the transactions are carried out at recognized stock exchange and time stamped contract notes were issued. The appellant had routed this transaction through recognized stock exchange notes. Thus, Revenue's appeal on future and option transaction is dismissed. But the appellant had not proved before the AO as well as CIT(A) that share loss was not speculative loss or delivery of shares has been taken by the appellant or not. Thus, for limited purpose, this issue is set aside to the AO.
6. In the result, the Revenue's appeal is partly allowed.
--
IT: Amendment brought about in section 80-IB(10) by insertion of clause (d) with effect from 1-4-2005 will not apply to an assessment year prior to 2005-06
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[2013] 35 taxmann.com 9 (Bombay)
HIGH COURT OF BOMBAY
Commissioner of Income-tax - 2
v.
Jogani Constructions Ltd.*
J.P. DEVADHAR AND M.S. SANKLECHA, JJ.
IT APPEAL (LOD.) NOS. 179 & 180 OF 2013
MARCH  15, 2013 
Section 80-IB(10) of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Housing projects] - Assessment years 2003-04 and 2004-05 - Whether amendment in section 80-IB(10) brought about by insertion of clause (d) with effect from 1-4-2005 will apply to an assessment year prior to assessment year 2005-06 - Held, no [Para 2] [In favour of assessee]
CASES REFERRED TO
 
CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxmann.com 289 (Bom.) (para 2).
Suresh Kumar for the Appellant. Ashok J. Patil for the Respondent.
ORDER
 
1. In these appeals by the appellant for the assessment years 2003-04 and 2004-05, following common questions of law have been raised for our consideration:-
(i)   Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in law in holding that the assessee is eligible for deduction u/s. 80IB(10), though the assessee had violated the provisions contained in clause (d) of Section 80IB (10) of the Income Tax Act by having commercial area exceeding the permissible limit, by following the decision in the case of Brahma Associates 333 ITR 289 in which it is held that the amendment in Section 80IB(10) brought about by insertion of clause (d) w.e.f. 1/4/2005 will not apply to an assessment year prior to A.Y. 2005-06, ignoring the fact that the said decision has not been accepted and SLP has been filed against the said decision by the Income Tax Department ?
(ii)  Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in law in holding that the assessee is eligible for deduction u/s.80IB(10) by following the decision in the case of Brahma Associates 333 ITR 289 in which it is held that the amendment brought about in Section 80IB(10) by insertion of clause (d) w.e.f. 1/4/2005 will not apply to an assessment year prior to A.Y. 2005-06, ignoring that prior to the amendment to Section 80IB(10) w.e.f. 1/4/2005, there was in fact no provision to allow deduction u/s.80IB(10) on projects having commercial space and only housing projects without any commercial unit were eligible for deduction u/s.80IB(10) and the amendment by way of insertion of clause (d) had in fact given a relaxation by allowing commercial area not exceeding 5% of the housing project or up to 2000 sq. ft. whichever is less ?
(iii)  Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in law in upholding the order of the CIT(A) allowing the deduction under Section 36(1)(iii) of the Income-tax Act, on proportionate interest expenditure allocable to work in progress forming part of closing stock, by following its decision in assessee's case for AY 1997-98, ignoring that the said decision of the Tribunal and also the decision on similar issue for AY 2000-01 has not been accepted and appeal u/s.260A has been filed before the Bombay High Court by the Income Tax Department ?
2. So far questions (i) & ( ii) are concerned, the Tribunal by the impugned order allowed the respondent-assessee's case by following the decision of this Court in the matter of CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxmann.com 289. In these circumstances, we see no reason to entertain questions (i) & (ii).
3. So far as question (iii) is concerned, counsel for the parties state that identical question raised by the revenue in the respondent-assessee's own case in Income Tax Appeal (Lod) No.177 of 2013 pertaining to assessment year 2006-07 was not entertained by this Court in an order passed today i.e. 15th March, 2013. In view of the reasons mentioned in the order passed in Income Tax Appeal (Lod) No.177 of 2013, we see no reason to entertain question (iii).
4. Accordingly, the appeal is dismissed with no order as to costs.
LATA


--
Regards,

Pawan Singla
BA (Hon's), LLB
Audit Officer


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